No QE3, But Federal Reserve Statement Green Lights Commodity Currencies and Gold

(This is an excerpt from an article I originally published on Seeking Alpha on January 26, 2012. Click here to read the entire piece.)

In its latest monetary policy proclamation, the Federal Reserve announced that it will likely extend the window for near-zero interest rates until at least late 2014. There was no hint of QE3, however during the conference call later in the day, Chairman Ben Bernanke indicated that “there is a case for additional policy action” if unemployment remains high and inflation remains low. I think these signals will add further pressure to central banks engaged in low interest rate policies. Competitive devaluations are sure to continue with more easing to come in an effort to prevent currencies from appreciating “too much” over the U.S. dollar. For example, weak conditions in the U.S. will surely imply weaker conditions to come across Europe. At least until the next phase of competitive devaluations begins in earnest, I prefer to play the commodity currencies, especially the Australian dollar (FXA), against renewed weakness in the U.S. dollar. This is consistent with my note earlier this month that the QE3 rumors required an imminent repositioning against the U.S. dollar.

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The Australian dollar is breaking out again versus the U.S. dollar
The Australian dollar is breaking out again versus the U.S. dollar

Gold (and silver) are also all the more attractive for buying on the dips. {snip}


GLD breaks out
GLD breaks out

Gold miners like Goldcorp (GG) had an even bigger day with a 6.9% pop.

Finally, the dollar index seems to confirm lower levels ahead as it has made no progress in a month and failed to break through overhead resistance set by highs from December, 2010 to January, 2011.


After a strong relief rally, the dollar index looks ready for an extended rest at lower levels
After a strong relief rally, the dollar index looks ready for an extended rest at lower levels

Source for charts: FreeStockCharts.com



Press Conference with Ben Bernanke, January 25, 2012

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on January 26, 2012. Click here to read the entire piece.)

Full disclosure: long FXA, GLD, SLV

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